Personal or Business Expenses?

When you are your own boss it might seem like you are always working even if you may have more flexibility to take time off…so it is not surprising that the line between personal or business expenses may fall into the grey zone. The general rule of thumb is the golden question: did you use what you purchase to earn income? If you can answer yes reasonably, then it is likely a business expense.

Here are some examples where we see the lines get blurred:

1)  Meals and Entertainment: dining out with friends may seem like the easiest way to pass a personal expense as a business expense. However, we would caution you against this. We recommend that our clients write the name of the person they dined with and the purpose of the dinner on the receipt in case of a CRA audit. Irregularities in your meals and entertainment expenses may also raise eyebrows (e.g. you earn $50,000 per year, but your meals & entertainment expense tally up to $40,000 – it does not seem reasonable).

2)  Office Supplies: most people need paper and ink to print invoices, reports, etc. However, your child’s school supplies cannot sneak into your office supply expense. The other issue we see with office supplies is the purchase of, for example, a computer. A computer generally cannot be used as an expense for your business. It needs to be depreciated over a couple of year.

3)  Travel: There are some businesses that travel makes up the majority of the costs of running your business. However, a business trip blended with a family trip may be treated differently for tax purposes.

Have more questions? Do not hesitate to contact us!